Moody’s Investors Services has no confidence Nokia will break even in the next 18 to 24 months, and has downgraded the vendor’s corporate family rating (CFR) and probability of default (PDR) as a result.
The firm cut Nokia’s CFR from Ba3 to B1, and its PDR from Ba3-PD to B1-PD, and also downgraded the vendor’s senior unsecured notes and MTN program ratings. Roberto Pozzi, a Moody’s vice president and lead Nokia analyst, says Moody’s believes Nokia will struggle to return to sustainable profitability until well into 2014, due to the competitive nature of the mobile device market.
“Nokia’s challenges are reflected in the ongoing negative operating margins and free cash flows in the first half of 2013. This is despite some evidence that the company and the Windows Phone are finding traction in their efforts to establish themselves as a third mobile operating system behind Apple’s iOS and Google’s Android,” Pozzi says.
The ratings agency accounts for the impact of Nokia’s recent buy out of Nokia Siemens Networks partner, Siemens, in its downgrades, which follow a near two month long review of the vendor’s performance.
Pozzi notes Nokia is generating double digit rises in device shipments, but points out it is coming from “a very low base and, therefore, it has yet to see a sustainable ramp that could allow it to achieve break even.
“In the second quarter of 2013, the smartphone business was still losing €14 for every €100 of sales.”